What To Watch in the New Gulf States Index

As recently reported at IndexUniverse.com, Standard & Poor's launched the S&P GCC 40, covering 40 stocks from the Gulf Cooperation Council markets, a trade bloc formed by the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The narrow-based index will contain large and liquid stocks that are participating in the current growth in the Persian Gulf. Of note is how Saudi Arabia, a largest market of the six, is excluded since it is not considered investable, or accessible to foreign investors. Stocks included in the index must have a market caps of $400 million or more and average daily volume over three months of at least $1 million. Three countries have the lion's share of the weighting, with the UAE at nearly 35% weighting, Kuwait at around 30%, and Qatar will a little over 29%. Financial companies also hold over 60% of the index weighting. Not surprisingly, the index was up 10.82% from January-May of this year, along with being up 39.22% for the last 12 months.

The index may prove to be popular as investors look for ways to diversity their international exposure away from the BRIC countries, while also participating in the growth spurred by higher crude oil prices, available capital, and increased investment in the region. Furthermore, crude oil and industrial companies do not dominate the index, allowing investors to limit their exposure to this volatile commodity directly, yet still benefit from its recent increases.